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SWOT Analysis: NEAR Protocol (NEAR)by@andreydidovskiy
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SWOT Analysis: NEAR Protocol (NEAR)

by Andrey DidovskiyNovember 13th, 2023
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NEAR Protocol, a prominent blockchain operating system, undergoes a thorough SWOT analysis. Key strengths include its deep roots in AI, a sophisticated tech stack, and a community-oriented approach. However, challenges like a decrease in DEFI TVL, perpetual inflation, and stablecoin contraction pose concerns. Opportunities lie in AI trends and community growth, while threats include potential developer abandonment and competition from other blockchain layers. In conclusion, NEAR exhibits promising technology and branding akin to Ethereum and Solana, emphasizing the importance of discovery in its developmental framework.
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Note: a SWOT analysis is an evaluation of the fundamental, operational, technical, social, economic, and even to some degree administrative elements of a project. This is not a model to be used for trading purposes. (NFA, DYOR)


Composed of four elements, Strengths, Weaknesses, Opportunities, and Threats, a SWOT analysis framework provides excellent insight for establishing a high-level understanding of the state of a project's well-being through the lens of a birds-eye view.


It can help formulate decisions around which areas require more attention, set performance goals, and organize a foundational understanding of where a project is headed.


Rarely (if ever) used in crypto, it is time to apply this timeless method of evaluation to the digital asset space.


Today, NEAR Protocol (NEAR), a contender on the L1 smart contract platform scene and the self-proclaimed "blockchain operating system," will get a SWOT.



NEAR SWOT Analysis



💪 Strengths (Internal) (Helpful)

1. Product Positioning with AI

NEAR has a very close association with Artificial Intelligence; so close in fact that, when NEAR was first conceived as a business/project, it was called Near.AI, and it was entirely focused on AI. Even though the project fully pivoted into the crypto/blockchain/web3 space, its roots run so deep with the founders themselves. Illia Polosukhin came from Google's AI research arm, and his partner Alex is actively working on a project called Yasna. Polusukhin has already mentioned that there are already explorations of embedding AI into NEAR.


2. Elegant Stack of Technological Innovation

Through an elegant compilation of multiple incremental technologies, NEAR has rolled out a solution that took the best that the industry had to offer and adapted them to create a product with distinguishing characteristics. Packed with the B.O.S. (blockchain operating system), nightshade sharding, threshold Proof-Of-Stake, human-readable account-based system, three-tier validator structure, and much more. Even though it is a bit dense and requires some technical knowledge, both versions {v1 /v2} of their documentation is worth a thorough read; NEAR is the perfect embodiment of “the whole is greater than the sum of the parts”.


3. Philosophical Alignment with Developers

Developers are the most valuable commodity to a blockchain network, and NEAR is acutely aware of their value and importance. NEAR's efforts to cater to devs is clear from the the amount of quality resources in the blogs, documentation, and in many other places focused on building products. Hosting conferences, creating a dedicated hub (with a purpose-built dev-focused governance system), developing tooling to empower devs to program in nearly any language, and creating an inviting atmosphere all conspire together to make NEAR a desirable space to work in. The proof is in the pudding. There are currently over 100 full-time developers and over 440 active contributors after the calamities of the last cycle.


4. Superstar Performance

As a competitor in the Layer 1 sector, NEAR has devised a blockchain system that provides extremely desirable performance metrics. With average transaction costs floating around $0.001, a throughput capacity of 100,000 transactions per second, and one-second finality. Outside of the technical, the business development has been hard at work. Multitudes of partnerships across many different sectors (sports, music, IT, and even alcohol).


5. Transaction Burn Fee Model

Many prominent layer 1's have followed in the footsteps of Ethereum and implemented a burn module into the structure of their transaction fees. NEAR's version of this burns 70% of fees (effectively creating a vehicle for combating inflation) and sends 30% back to the contract that originated the transaction (developers/organization). This creates a virtuous cycle where more projects are further incentivized to produce high-quality products and market them.


6. Transaction Stability Mechanism

As a part of its architectural specifications, NEAR is capable of handling network load variance exceptionally well. Even though the address count spiked by 350% and transaction activity spiked by ~>120%, network fees were able to remain stable around $0.001 (or 0.0001 NEAR). Made possible through its sharding and staking modules, this performance indicates a future with much more certainty around gas fees (an economic property necessary to build a greater diversity of sophisticated financial/gaming/social instrumentation).


7. Intelligent DAO Decentralization Model

Decentralized Autonomous Organizations have become the de-facto entities for social coordination in Web3. Near has outlined an approach to the decentralization of the network through the establishment of purpose-specific DAOs and handing over control to them as they mature. With four DAOs already actively growing (Marketing DAO, DEV DAO, Creatives DAO, and NDC), it is clear as day that NEAR has put serious, sophisticated thought into the action plan. By approaching decentralization through the lens of empowering the communities overseeing the ecosystem (rather than just the end users that don't engage or have any sophistication/diligence processes), higher quality results can be anticipated whenever power is diffused.


😞 Weaknesses (Internal, Harmful)


1. DEFI TVL not showing Recovery

During the ravages of crypto bear 2022, every network experienced shrinkage in the total value locked across their DEFI platforms. NEAR experienced a compression of roughly ~90%, falling from ~450 million USD to now just above ~50 million USD. While some of the industry (primarily leading L1's and L2's) have begun to show QoQ reversals, NEAR continues to trend down. Considering the recent marketwide positive price action, a stagnation in TVL shows a lack of desire from participants to commit their capital; a phenomenon that has a negative recursive feedback.


2. Perpetual NEAR Inflation

While the economic logic presented by NEAR that inflation is a method of compensation for node operators is a valid one, the fact that there will be persistent 5% inflation ultimately causes drag on the per-unit value of the NEAR token. Moreover, the inflationary rewards are distributed in a 90/10 manner, with 90% going to node operators and 10% going to the Near treasury. The long-term accrual of tokens in the hands of a treasury creates another trust-dependence vector, which, regardless of promises, can always backfire.


3. Stablecoin Contraction

As is the case with DEFI TVL across the entire marketplace, stablecoins have been the killer financial application that has plummeted in terms of its on-chain footprint across different networks. Sporting some odd ~370 million USD at one point, the total stablecoin liquidity on NEAR has been incessantly becoming smaller. When taking into the context of recent issuances of fresh stablecoins by Tether and the arrival of native USDC; today's ~82 million USD is minuscule relative to the market capitalization of the project.


🧐 Opportunities (External) (Helpful)

1. Continued Growth of AI Trend

Trends come and go, but some things tend to stay. AI is a "trend" that has been around since the 1950's. Since its inception, it has experienced many floods of spiking interest but has never been able to deliver any sticky products due to a lack of infrastructure to host it. Well, now the world has matured, computation has become orders of magnitude more capable, and energy has become more abundant; it seems as though AI has finally teetered over its own inflection point and, moving forward, will be a permanent element in the fabric of society. NEAR's natural leaning towards AI will likely result in a monsoon of interest spilling over to it from AI.


2. Relentless Community Orientation

It should be no secret that the most important element in the success of a crypto project is the community it breeds. NEAR has delivered a miracle in this sense. Constantly hosting some of the most talked about events, NEAR has built a community of developers, investors, and just grassroots supporters that has a lot of overlap outside of the original crypto ecosystem. There are developers that have entered crypto, and only ever developed in Web3 via NEAR. There are NEAR token holders that have never even owned Bitcoin or Ethereum. By inviting new market participants, NEAR is growing the industry as a whole and showing some of the strongest social signals that express longevity and economic resilience.

😳 Threats (External) (Harmful)

1. Developer Abandonment

Every project has a threshold inflection point or critical mass where the flywheel effect takes over its growth and escape velocity is achieved (the project becomes "self-sufficient" or less dependent on any individual entity). Granted, this is a very general argument that can be made for any project; however, it is important to note that NEAR posted a loss of developers to the tune of ~60% last year, ranking it at the lower end of all projects. It is not out of the picture that, for some odd reason, it turns out the market does not endorse NEAR, and that talent disperses to other projects.


2. Layer Competition

Even though NEAR is called a layer 1, its technology extends into a more "base layer" category that lands NEAR somewhat closer to Layer 0. This means that NEAR is indirectly competing against Polkadot, Comos, and Avalanche, as well as Solana, Aptos, Cardano, and so on. As the industry continues to mature, there are good chances that consolidations will happen where chains will merge, users will migrate, and networks will halt. Considering the grade-A, high-caliber projects against which NEAR is competing, the evolution will be quite the spectacle.

Takeaway:

NEAR is a tier-one project.


There are a slew of technological design choices that inspire and entice. Excellent branding in appearance and in culture. Attractive potential future that is articulated well and executed with great energy.


NEAR puts a lot of emphasis on the intersections between technology and society, deliberately mixing two of the most fundamental drivers/elements of economic prosperity.

Conclusion:

Articulate in its technology and very inviting with its brand culture, NEAR has many characteristics similar to what Ethereum and Solana exhibited in the earlier stages of the projects.


Something that sticks out very much is how eloquently NEAR has been able to synthesize technologies while not becoming a focal point of trash-talking toxicity as can be seen with other tribal networks.


What has not been discussed is the subtle angle that NEAR has been taking into account in the mental framework during development; discovery. Not a subject commonly discussed outside of industry expert circles, discovery is a primitive that drives attention and amplifies utility; after all how can you know what there is to do if you never even look?


Interestingly enough, it seems that the conversations within NEAR do not talk much about RWA; instead, they seem to be more retail-facing. Eerily reminiscent of Web3's equivalent of a "Shopify" -  not by purpose, but by its relative role within the industry.


Thank you so much for reading,

I hope this serves you well on your journey.


Live long and prosper 🥂